##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the transition period from _______________ to _______________
 Commission File Number: 000-50543
 PORTEC RAIL PRODUCTS, INC.
 
  West Virginia
    
    55-0755271(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)900 Old Freeport Road, Pittsburgh, Pennsylvania
    
    15238-8250(Address of Principal Executive Offices)
    
    (Zip Code)
 (412) 782-6000
 
  
  þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ o þ




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##### 



PORTEC RAIL PRODUCTS, INC.
 INDEX TO FORM 10-Q
 ItemNumber
    
    
    
    Page NumberPART I  FINANCIAL INFORMATION1.
    
    Financial Statements:Condensed Consolidated Balance Sheets
September 30, 2008 (Unaudited) and December 31, 2007
    
    3Condensed Consolidated Statements of Income (Unaudited)
Three and nine months ended September 30, 2008 and 2007
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 2008 and 2007
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    62.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    193.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    314T.
    
    Controls and Procedures
    
    31PART II  OTHER INFORMATION1.
    
    Legal Proceedings
    
    311A.
    
    Risk Factors
    
    322.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    323.
    
    Defaults Upon Senior Securities
    
    324.
    
    Submission of Matters to a Vote of Security Holders
    
    325.
    
    Other Information
    
    326.
    
    Exhibits
    
    33Signatures
    
    34EX-31.1EX-31.2EX-32
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM
1. FINANCIAL STATEMENTS
 
 Portec Rail Products, Inc.
Condensed Consolidated Balance Sheets
 September 30
    
    December 312008
    
    2007(Unaudited)
    
    (Audited)(In Thousands)AssetsCurrent assetsCash and cash equivalents
    
    $
    6,115
    
    
    $
    4,273Accounts receivable, net
    
    
    17,824
    
    
    
    17,411Inventories, net
    
    
    25,810
    
    
    
    22,990Prepaid expenses and other current assets
    
    
    1,230
    
    
    
    586Deferred income taxes
    
    
    236
    
    
    
    375Total current assets
    
    $
    51,215
    
    
    $
    45,635Property, plant and equipment, net of
accumulated depreciation of $13,315 and
$13,540 at September 30, 2008 and December 31,
2007, respectively.
    
    
    11,438
    
    
    
    11,121Intangible assets, net of accumulated
amortization of $3,989 and $3,140 at September
30, 2008 and December 31, 2007, respectively
    
    
    30,113
    
    
    
    31,542Goodwill
    
    
    14,166
    
    
    
    15,059Other assets
    
    
    920
    
    
    
    869Total assets
    
    $
    107,852
    
    
    $
    104,226Liabilities and Shareholders EquityCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    10,016
    
    
    $
    6,865Accounts payable
    
    
    7,592
    
    
    
    6,167Accrued income taxes
    
    
    960
    
    
    
    706Customer deposits
    
    
    1,847
    
    
    
    1,380Accrued compensation
    
    
    2,459
    
    
    
    2,979Other accrued liabilities
    
    
    3,220
    
    
    
    2,795Deferred purchase price  current portion
    
    
    
    
    
    
    298Total current liabilities
    
    
    26,094
    
    
    
    21,190Long-term debt, less current maturities
    
    
    7,507
    
    
    
    9,463Deferred income taxes
    
    
    10,306
    
    
    
    11,524Accrued pension costs
    
    
    357
    
    
    
    1,175Other long-term liabilities
    
    
    960
    
    
    
    977Total liabilities
    
    
    45,224
    
    
    
    44,329Commitments and Contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock, $1 par value, 50,000,000
shares authorized, 9,602,029 shares
issued and outstanding at September 30,
2008 and 9,601,779 outstanding at
December 31, 2007, respectively
    
    
    9,602
    
    
    
    9,602Additional paid-in capital
    
    
    25,417
    
    
    
    25,342Retained earnings
    
    
    27,696
    
    
    
    23,161Accumulated other comprehensive (loss)/gain
    
    
    (87
    )
    
    
    1,792Total shareholders equity
    
    
    62,628
    
    
    
    59,897Total liabilities and shareholders equity
    
    $
    107,852
    
    
    $
    104,226
 See Notes to Condensed Consolidated Financial Statements
 3




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##### Table of Contents



Portec Rail Products, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
 Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302008
    
    2007
    
    2008
    
    2007(Dollars in Thousands, Except Per Share Data)Net sales
    
    $
    29,644
    
    
    $
    27,998
    
    
    $
    84,681
    
    
    $
    84,572Cost of sales
    
    
    19,731
    
    
    
    18,803
    
    
    
    57,140
    
    
    
    58,228Gross profit
    
    
    9,913
    
    
    
    9,195
    
    
    
    27,541
    
    
    
    26,344Selling, general and administrative
    
    
    5,872
    
    
    
    5,563
    
    
    
    17,267
    
    
    
    16,875Amortization expense
    
    
    296
    
    
    
    315
    
    
    
    891
    
    
    
    924Operating income
    
    
    3,745
    
    
    
    3,317
    
    
    
    9,383
    
    
    
    8,545Interest expense
    
    
    205
    
    
    
    323
    
    
    
    640
    
    
    
    947Other expense (income), net
    
    
    44
    
    
    
    191
    
    
    
    (77
    )
    
    
    289Income before income taxes
    
    
    3,496
    
    
    
    2,803
    
    
    
    8,820
    
    
    
    7,309Provision for income taxes
    
    
    980
    
    
    
    913
    
    
    
    2,556
    
    
    
    2,327Net income
    
    $
    2,516
    
    
    $
    1,890
    
    
    $
    6,264
    
    
    $
    4,982Earnings per shareBasic and diluted
    
    $
    0.26
    
    
    $
    0.20
    
    
    $
    0.65
    
    
    $
    0.52Weighted average shares outstandingBasic and diluted
    
    
    9,602,029
    
    
    
    9,601,779
    
    
    
    9,601,894
    
    
    
    9,601,779Dividends per share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.18
    
    
    $
    0.18
 See Notes to Condensed Consolidated Financial Statements
 4




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##### Table of Contents



Portec Rail Products, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months EndedSeptember 302008
    
    2007(In Thousands)Operating ActivitiesNet income
    
    $
    6,264
    
    
    $
    4,982Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation expense
    
    
    1,367
    
    
    
    1,763Amortization expense
    
    
    891
    
    
    
    924Provision for doubtful accounts
    
    
    132
    
    
    
    79Deferred income taxes
    
    
    291
    
    
    
    (217
    )Pension (income) expense
    
    
    (30
    )
    
    
    53Defined benefit pension plan contributions
    
    
    (814
    )
    
    
    (186
    )Loss on disposal of assets
    
    
    48
    
    
    
    133Stock based compensation expense
    
    
    73
    
    
    
    38Impairment of long-lived assets
    
    
    
    
    
    
    50Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,739
    )
    
    
    (5,106
    )Inventories
    
    
    (3,923
    )
    
    
    1,481Prepaid expenses and other current assets
    
    
    (851
    )
    
    
    (889
    )Accounts payable
    
    
    2,286
    
    
    
    1,123Income taxes payable
    
    
    324
    
    
    
    (219
    )Accrued expenses
    
    
    406
    
    
    
    92Net cash provided by operating activities
    
    
    4,725
    
    
    
    4,101Investing ActivitiesPurchases of property, plant and equipment
    
    
    (2,304
    )
    
    
    (1,484
    )Proceeds from sale of assets
    
    
    12
    
    
    
    2,436Contingent consideration  business acquisition
    
    
    (148
    )
    
    
    (116
    )Net cash (used in) provided by investing activities
    
    
    (2,440
    )
    
    
    836Financing ActivitiesNet increase in working capital facilities
    
    
    3,087
    
    
    
    3,237Book overdrafts
    
    
    (245
    )
    
    
    171Principal payments on promissory notes
    
    
    (280
    )
    
    
    (280
    )Proceeds from term loans
    
    
    1,800
    
    
    
    54Principal payments on term loans
    
    
    (2,731
    )
    
    
    (4,326
    )Principal payments on capital leases
    
    
    
    
    
    
    (62
    )Fees paid to obtain new financing
    
    
    (21
    )
    
    
    Issuance of common stock
    
    
    2
    
    
    
    Cash dividends paid to shareholders
    
    
    (1,728
    )
    
    
    (1,728
    )Net cash used in financing activities
    
    
    (116
    )
    
    
    (2,934
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (327
    )
    
    
    220Increase in cash and cash equivalents
    
    
    1,842
    
    
    
    2,223Cash and cash equivalents at beginning of period
    
    
    4,273
    
    
    
    1,822Cash and cash equivalents at end of period
    
    $
    6,115
    
    
    $
    4,045Supplemental Disclosures of Cash Flow InformationCash paid during the period for:Interest
    
    $
    676
    
    
    $
    953Income taxes
    
    $
    2,145
    
    
    $
    2,860
 See Notes to Condensed Consolidated Financial Statements
 5




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 1: Organization
  Note 2: Basis of Presentation
  6




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 3: Inventories
   September 30
    
    December 312008
    
    2007(In Thousands)Raw materials
    
    $
    11,952
    
    
    $
    9,849Work in process
    
    
    325
    
    
    
    521Finished goods
    
    
    14,512
    
    
    
    13,01726,789
    
    
    
    23,387Less reserve for slow-moving and obsolete inventory
    
    
    979
    
    
    
    397Net inventory
    
    $
    25,810
    
    
    $
    22,990
 Note 4: Long-Term Debt
  September 30
    
    December 312008
    
    2007(In Thousands)National City Bank Credit Facility: (a)Term loan  Kelsan acquisition
    
    $
    6,101
    
    
    $
    8,435Term loan  Vulcan asset acquisition
    
    
    1,850
    
    
    
    2,300Revolving credit facility  United States
    
    
    5,950
    
    
    
    2,300Revolving credit facility  Canada
    
    
    
    
    
    
    United Kingdom loans: (b)Term loan  Coronet Rail acquisition
    
    
    1,519
    
    
    
    2,119Working capital facility
    
    
    
    
    
    
    575Term loans  vehicles
    
    
    23
    
    
    
    39Promissory notes  Salient Systems acquisition (c)
    
    
    280
    
    
    
    560Credit facility  Boone County Bank, Inc. (d)
    
    
    1,800
    
    
    
    17,523
    
    
    
    16,328Less current maturities
    
    
    10,016
    
    
    
    6,865$
    7,507
    
    
    $
    9,463
 (a) National City Bank Credit Facility
  7




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
   Term Loan  Kelsan Acquisition:
  Term Loan  Vulcan Asset Acquisition:
  Revolving Credit Facility  United States:
  Revolving Credit Facility  Canada:
  8




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 (b) United Kingdom Loans
 Term Loan  Coronet Rail Acquisition:
  Working Capital Facility:
   (c) Salient Systems Promissory Notes
 Wall Street Journal
 9




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  d) Credit Facility  Boone County Bank, Inc.
   Note 5: Income Taxes
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109
    10




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Nine Months EndedSeptember 30, 2008(In Thousands)Balance at January 1, 2008
    
    $
    313Additions based on tax positions related to the current year
    
    
    76Reductions for tax positions of prior years
    
    
    (50
    )Balance at September 30, 2008
    
    $
    339
  Note 6: Retirement Plans
  Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302008
    
    2007
    
    2008
    
    2007(In Thousands)Interest cost
    
    $
    138
    
    
    $
    133
    
    
    $
    414
    
    
    $
    401Expected return on plan assets
    
    
    (166
    )
    
    
    (157
    )
    
    
    (496
    )
    
    
    (471
    )Amortization of unrecognized loss
    
    
    18
    
    
    
    33
    
    
    
    53
    
    
    
    97Pension (benefit) cost
    
    $
    (10
    )
    
    $
    9
    
    
    $
    (29
    )
    
    $
    27
   11




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Portec Rail PlanThree Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302008
    
    2007
    
    2008
    
    2007(In Thousands)Service cost
    
    $
    10
    
    
    $
    
    
    
    $
    31
    
    
    $
    Interest cost
    
    
    80
    
    
    
    81
    
    
    
    248
    
    
    
    240Expected return on plan assets
    
    
    (94
    )
    
    
    (89
    )
    
    
    (290
    )
    
    
    (263
    )Amortization of transition amount
    
    
    (14
    )
    
    
    (15
    )
    
    
    (44
    )
    
    
    (45
    )Amortization of unrecognized loss
    
    
    20
    
    
    
    34
    
    
    
    62
    
    
    
    100Pension cost
    
    $
    2
    
    
    $
    11
    
    
    $
    7
    
    
    $
    32
 Conveyors PlanThree Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302008
    
    2007
    
    2008
    
    2007(In Thousands)Service cost
    
    $
    1
    
    
    $
    
    
    
    $
    3
    
    
    $
    Interest cost
    
    
    18
    
    
    
    19
    
    
    
    56
    
    
    
    55Expected return on plan assets
    
    
    (19
    )
    
    
    (19
    )
    
    
    (59
    )
    
    
    (55
    )Amortization of transition amount
    
    
    (3
    )
    
    
    (3
    )
    
    
    (9
    )
    
    
    (9
    )Amortization of unrecognized loss
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    3Pension (benefit)
    
    $
    (3
    )
    
    $
    (2
    )
    
    $
    (9
    )
    
    $
    (6
    )
  Note 7: Comprehensive Income
  Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302008
    
    2007
    
    2008
    
    2007(In Thousands)Net income
    
    $
    2,516
    
    
    $
    1,890
    
    
    $
    6,264
    
    
    $
    4,982Minimum pension liability adjustment, net of tax
    
    
    94
    
    
    
    (41
    )
    
    
    94
    
    
    
    (95
    )Foreign currency translation adjustments, net of tax
    
    
    (1,584
    )
    
    
    1,127
    
    
    
    (1,974
    )
    
    
    2,334Comprehensive income
    
    $
    1,026
    
    
    $
    2,976
    
    
    $
    4,384
    
    
    $
    7,221
 12




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Note 8: Earnings Per Share
 Earnings Per Share
 Note 9: Commitments and Contingencies
 Contractual Obligations
  Less
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    1  3
    
    
    3  5
    
    
    than 5Contractual Obligations
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    years(In Thousands)Term loans
    
    $
    9,773
    
    
    $
    894
    
    
    $
    7,367
    
    
    $
    1,512
    
    
    $
    Purchase obligations
    
    
    7,192
    
    
    
    4,897
    
    
    
    2,295
    
    
    
    
    
    
    
    Working capital facilities
    
    
    7,750
    
    
    
    7,750
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    5,256
    
    
    
    362
    
    
    
    2,417
    
    
    
    1,146
    
    
    
    1,331Pension plan contributions (1)
    
    
    3,952
    
    
    
    
    
    
    
    1,302
    
    
    
    1,450
    
    
    
    1,200Future interest payments (2)
    
    
    657
    
    
    
    114
    
    
    
    519
    
    
    
    24
    
    
    
    Total contractual obligations (3)
    
    $
    34,580
    
    
    $
    14,017
    
    
    $
    13,900
    
    
    $
    4,132
    
    
    $
    2,531
 
 (1)
    
    Pension plan contributions that may be required more than one year from September 30, 2008 will
be dependent upon the performance of plan assets.(2)
    
    Represents future interest payments on long-term debt obligations as of September 30, 2008.
Assumes that the interest rates on our debt obligations at September 30, 2008 (See Note 4,
Long-Term Debt, Page 7) will continue for the life of the agreements.(3)
    
    During the first quarter 2007, we recognized a liability of $313,000 for uncertain tax
positions in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109 (FIN 48).
During the first quarter 2008, we recognized $26,000 of additional liability. See Note 5, Income
Taxes, Page 10. The total amount of $339,000 is included within other long-term liabilities on the
September 30, 2008 consolidated balance sheet. However, because of the high degree of uncertainty
regarding the timing of future cash outflows associated with this FIN 48 liability, we cannot
reasonably estimate the periods of related future payments, and as such, we have excluded the FIN
48 liability from the contractual obligations table. Contingencies
  13




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Accounting for Contingencies, Accrual for Loss Contingencies and Obligations Related to Product Warranties and Product Defects
(SFAS 5)
 Litigation
  Note 10: Segment Information
  14




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Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
  Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302008
    
    2007
    
    2008
    
    2007(In Thousands)External SalesRMP
    
    $
    12,352
    
    
    $
    13,234
    
    
    $
    34,929
    
    
    $
    38,430SSD
    
    
    2,345
    
    
    
    2,012
    
    
    
    8,287
    
    
    
    6,227Canada
    
    
    7,502
    
    
    
    4,579
    
    
    
    21,457
    
    
    
    18,265United Kingdom
    
    
    7,445
    
    
    
    8,173
    
    
    
    20,008
    
    
    
    21,650Total
    
    $
    29,644
    
    
    $
    27,998
    
    
    $
    84,681
    
    
    $
    84,572Intersegment SalesRMP
    
    $
    1,092
    
    
    $
    544
    
    
    $
    2,489
    
    
    $
    1,662SSD
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Canada
    
    
    1,875
    
    
    
    1,632
    
    
    
    5,358
    
    
    
    5,418United Kingdom
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146Total
    
    $
    2,967
    
    
    $
    2,176
    
    
    $
    7,847
    
    
    $
    7,223Total SalesRMP
    
    $
    13,444
    
    
    $
    13,778
    
    
    $
    37,418
    
    
    $
    40,092SSD
    
    
    2,345
    
    
    
    2,012
    
    
    
    8,287
    
    
    
    6,224Canada
    
    
    9,377
    
    
    
    6,211
    
    
    
    26,815
    
    
    
    23,683United Kingdom
    
    
    7,445
    
    
    
    8,173
    
    
    
    20,008
    
    
    
    21,796Total
    
    $
    32,611
    
    
    $
    30,174
    
    
    $
    92,528
    
    
    $
    91,795Operating Income (Loss)RMP
    
    $
    1,960
    
    
    $
    2,162
    
    
    $
    5,066
    
    
    $
    5,148SSD
    
    
    238
    
    
    
    323
    
    
    
    1,609
    
    
    
    961Canada
    
    
    1,486
    
    
    
    325
    
    
    
    3,165
    
    
    
    2,450United Kingdom
    
    
    872
    
    
    
    1,259
    
    
    
    2,059
    
    
    
    2,608Corporate Shared Services
    
    
    (811
    )
    
    
    (752
    )
    
    
    (2,516
    )
    
    
    (2,622
    )Total
    
    
    3,745
    
    
    
    3,317
    
    
    
    9,383
    
    
    
    8,545Interest Expense
    
    
    205
    
    
    
    323
    
    
    
    640
    
    
    
    947Other (Income) Expense, net
    
    
    44
    
    
    
    191
    
    
    
    (77
    )
    
    
    289Income Before Income Taxes
    
    $
    3,496
    
    
    $
    2,803
    
    
    $
    8,820
    
    
    $
    7,309Depreciation ExpenseRMP
    
    $
    154
    
    
    $
    215
    
    
    $
    408
    
    
    $
    619SSD
    
    
    54
    
    
    
    43
    
    
    
    153
    
    
    
    110Canada
    
    
    199
    
    
    
    180
    
    
    
    597
    
    
    
    547United Kingdom
    
    
    70
    
    
    
    177
    
    
    
    160
    
    
    
    405Corporate Shared Services
    
    
    15
    
    
    
    29
    
    
    
    49
    
    
    
    82Total
    
    $
    492
    
    
    $
    644
    
    
    $
    1,367
    
    
    $
    1,763
 15




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302008
    
    2007
    
    2008
    
    2007(In Thousands)Amortization ExpenseRMP
    
    $
    6
    
    
    $
    2
    
    
    $
    12
    
    
    $
    4SSD
    
    
    55
    
    
    
    54
    
    
    
    163
    
    
    
    161Canada
    
    
    176
    
    
    
    195
    
    
    
    533
    
    
    
    555United Kingdom
    
    
    59
    
    
    
    64
    
    
    
    183
    
    
    
    204Corporate Shared Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    296
    
    
    $
    315
    
    
    $
    891
    
    
    $
    924Capital ExpendituresRMP
    
    $
    157
    
    
    $
    211
    
    
    $
    1,891
    
    
    $
    504SSD
    
    
    26
    
    
    
    32
    
    
    
    72
    
    
    
    497Canada
    
    
    24
    
    
    
    136
    
    
    
    117
    
    
    
    270United Kingdom
    
    
    34
    
    
    
    13
    
    
    
    187
    
    
    
    148Corporate Shared Services
    
    
    17
    
    
    
    17
    
    
    
    37
    
    
    
    65Total
    
    $
    258
    
    
    $
    409
    
    
    $
    2,304
    
    
    $
    1,484
 September 30
    
    December 312008
    
    2007(In Thousands)
    
    (In Thousands)Total AssetsRMP
    
    $
    43,194
    
    
    $
    40,360SSD
    
    
    8,204
    
    
    
    7,862Canada
    
    
    38,327
    
    
    
    36,014United Kingdom
    
    
    17,945
    
    
    
    19,775Corporate Shared Services
    
    
    182
    
    
    
    215Total
    
    $
    107,852
    
    
    $
    104,226
 Note 11: Recent Accounting Pronouncements
 Business Combinations  a revision of SFAS 141
 16




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 The Fair
Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement 115
 Fair Value Measurements
 Note 12: Stock Options
  Share-Based Payments
  17




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##### Table of Contents



Portec Rail Products, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Stock Price
    
    Exercise
    
    Annual
    
    
    
    
    
    
    
    
    
    ExpectedFair Value
    
    on Grant
    
    Price per
    
    Dividend
    
    Risk-free
    
    Expected
    
    Term (inGrant Date
    
    Price
    
    Date
    
    Stock Option
    
    Yield
    
    Rate
    
    Volatility
    
    years)7/02/08
    
    $
    1.42
    
    
    $
    12.01
    
    
    $
    12.01
    
    
    
    2.00
    %
    
    
    4.25
    %
    
    
    36.36
    %
    
    
    7.51/30/08
    
    $
    3.67
    
    
    $
    9.68
    
    
    $
    9.68
    
    
    
    2.48
    %
    
    
    4.00
    %
    
    
    38.87
    %
    
    
    7.51/16/07
    
    $
    3.61
    
    
    $
    9.65
    
    
    $
    9.65
    
    
    
    2.50
    %
    
    
    4.73
    %
    
    
    39.40
    %
    
    
    6.5
 Note 13: Subsequent Events
  18




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##### Table of Contents



ITEM
2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  Cautionary Statement Relevant to Forward-looking Statements
   
    
    customer demand;
    
    competitive dynamics in the North American and worldwide railroad and railway supply
industries;
    
    capital expenditures by the railway industry in North America and worldwide;
    
    economic conditions, including changes in inflation rates or interest rates;
    
    product development and the success of new products;
    
    our ability to successfully pursue, consummate and integrate attractive acquisition
opportunities;
    
    changes in laws and regulations;
    
    the development and retention of sales representation and distribution agreements
with third parties;
    
    limited international protection of our intellectual property;
    
    the loss of key personnel;
    
    fluctuations in the cost and availability of raw materials and supplies, and any
significant disruption of supplies;
    
    foreign economic conditions, including currency rate fluctuations;
    
    political unrest in foreign markets and economic uncertainty due to terrorism or
war;
    
    exposure to pension liabilities;
    
    seasonal fluctuations in our sales;
    
    technological innovations by our competitors; and
    
    the importation of lower cost competitive products into our markets.
  19




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##### Table of Contents



Overview
      Results of Operations
 Three Months Ended September 30, 2008 compared to Three Months Ended September 30, 2007
 Net Sales.
 20




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##### Table of Contents



Gross Profit.
 Selling, General and Administrative Expenses.
 Interest Expense.
 Other Expense.
 Provision for Income Taxes.
 Net Income.
 Nine Months Ended September 30, 2008 compared to Nine Months Ended September 30, 2007
 Net Sales.
 21




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##### Table of Contents



Gross Profit. TM
 Selling, General and Administrative Expenses.
 Interest Expense.
 Other (Income)/Expense.
 Provision for Income Taxes.
 Net Income.
 22




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##### Table of Contents



Business Segment Review
 Railway Maintenance Products Division  RMP .
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands)External sales
    
    $
    12,352
    
    
    $
    13,234
    
    
    $
    34,929
    
    
    $
    38,430Intersegment sales
    
    
    1,092
    
    
    
    544
    
    
    
    2,489
    
    
    
    1,662Operating income
    
    
    1,960
    
    
    
    2,162
    
    
    
    5,066
    
    
    
    5,148Sales by product line(1)Track component products
    
    $
    6,791
    
    
    $
    6,724
    
    
    $
    19,469
    
    
    $
    21,782Friction management products and services
    
    
    4,668
    
    
    
    4,235
    
    
    
    11,659
    
    
    
    12,166Wayside data collection and data management systems
    
    
    1,039
    
    
    
    2,238
    
    
    
    3,764
    
    
    
    4,773Other products and services
    
    
    946
    
    
    
    581
    
    
    
    2,526
    
    
    
    1,371Total product and service sales
    
    $
    13,444
    
    
    $
    13,778
    
    
    $
    37,418
    
    
    $
    40,092
 
 (1)
    
    Includes intersegment sales.   23




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##### Table of Contents



Shipping Systems Division  SSD .
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands)External sales
    
    $
    2,345
    
    
    $
    2,012
    
    
    $
    8,287
    
    
    $
    6,227Intersegment sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Operating income
    
    
    238
    
    
    
    323
    
    
    
    1,609
    
    
    
    961Sales by product line(1)Automotive products
    
    $
    1,326
    
    
    $
    1,171
    
    
    $
    5,125
    
    
    $
    3,286Chain securement systems
    
    
    730
    
    
    
    406
    
    
    
    2,285
    
    
    
    1,662Strap securement systems
    
    
    113
    
    
    
    231
    
    
    
    260
    
    
    
    676Other load securement systems
    
    
    176
    
    
    
    204
    
    
    
    617
    
    
    
    600Total product and service sales
    
    $
    2,345
    
    
    $
    2,012
    
    
    $
    8,287
    
    
    $
    6,224
 
 (1)
    
    Includes intersegment sales. TM
 TM
 Portec Rail Nova Scotia Company  Canada . ® ®
 24




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands, Except Translation Rate)External sales
    
    $
    7,502
    
    
    $
    4,579
    
    
    $
    21,457
    
    
    $
    18,265Intersegment sales
    
    
    1,875
    
    
    
    1,632
    
    
    
    5,358
    
    
    
    5,418Operating income
    
    
    1,486
    
    
    
    325
    
    
    
    3,165
    
    
    
    2,450Average translation rate of Canadian dollar
to United States dollar
    
    
    0.9598
    
    
    
    0.9578
    
    
    
    0.9814
    
    
    
    0.9153Sales by product line(1)Rail anchors and spikes
    
    $
    3,461
    
    
    $
    2,934
    
    
    $
    12,820
    
    
    $
    12,542Friction management products and services
    
    
    5,426
    
    
    
    2,950
    
    
    
    12,745
    
    
    
    10,089Other products and services
    
    
    490
    
    
    
    327
    
    
    
    1,250
    
    
    
    1,052Total product and service sales
    
    $
    9,377
    
    
    $
    6,211
    
    
    $
    26,815
    
    
    $
    23,683
 
 (1)
    
    Includes intersegment sales.   Portec Rail Products (UK) Ltd.  United Kingdom .
 25




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands, Except Translation Rate)External sales
    
    $
    7,445
    
    
    $
    8,173
    
    
    $
    20,008
    
    
    $
    21,650Intersegment sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146Operating income
    
    
    872
    
    
    
    1,259
    
    
    
    2,059
    
    
    
    2,608Average translation rate of British pound
sterling to United States dollar
    
    
    1.8937
    
    
    
    2.0262
    
    
    
    1.9454
    
    
    
    1.9979Sales by product line(1)Friction management products and services
    
    $
    3,448
    
    
    $
    3,166
    
    
    $
    8,709
    
    
    $
    8,016Material handling products
    
    
    2,715
    
    
    
    3,730
    
    
    
    7,060
    
    
    
    9,479Track component products
    
    
    1,282
    
    
    
    1,277
    
    
    
    4,239
    
    
    
    4,301Total product and service sales
    
    $
    7,445
    
    
    $
    8,173
    
    
    $
    20,008
    
    
    $
    21,796
 
 (1)
    
    Includes intersegment sales.   Liquidity and Capital Resources
   Cash Flow Analysis .
 26




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##### Table of Contents



Financial Condition
    Discussion of Critical Accounting Policies
  27




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##### Table of Contents



Revenue Recognition.
   Allowances for Doubtful Accounts.
  Inventories.
 Goodwill and Other Intangible Assets. Goodwill and Other Intangible Assets.
 Accounting for Impairment or Disposal of Long-Lived Assets.
 28




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##### Table of Contents



Warranty Reserves.
 29




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##### Table of Contents



Retirement Benefit Plans. Employers Accounting for Pensions Employers
Accounting for Defined Benefit Plans and Other Postretirement Plans
   Income Taxes.
  Accounting for Uncertainty in
Income Taxes  an Interpretation of FASB Statement No. 109
 30




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##### Table of Contents



ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM
4T. CONTROLS AND PROCEDURES
  
 PART II  OTHER INFORMATION
 
 ITEM
1. LEGAL PROCEEDINGS
  31




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##### Table of Contents



ITEM 1A. RISK FACTORS
 Recent economic uncertainty in the United States and other worldwide economies may affect our
results of operations or financial condition, or adversely impact our ability to access our credit
facilities.
   
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  32




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##### Table of Contents



ITEM 6. EXHIBITS
 (a)
    
    Exhibits filed as part of this Form 10-Q:
 31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232
    
    Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
 33




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##### Table of Contents



SIGNATURES
  PORTEC RAIL PRODUCTS, INC.Date: November 6, 2008
    By:
    /s/ Richard J. JarosinskiRichard J. Jarosinski, President andChief Executive OfficerDate: November 6, 2008
    By:
    /s/ John N. PesarsickJohn N. Pesarsick, Chief Financial
Officer 34




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##### Table of Contents



EXHIBIT INDEX
 31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
 35